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August 16, 2007

Open Devices, Not Just Handsets in Swath of 700 MHz

Forgive me for taking a week to read the FCC's order governing the licenses for the 700 MHz band they'll auction off a few months hence: The FCC put out its press release two weeks ago about how the terms by which licenses would be auctioned and usage of them regulated for a bunch of "beach-front" spectrum--frequencies ideally suited to reach into homes with less power and less equipment than needed by most currently allotted bands. The most significant of the licenses are a set of six (the Upper 700 C Block in the auction terms) that span the country and offer now 22 MHz (split into up and down pieces) that could deliver 50 Mbps per cell based on the current roadmap for cell and related wireless standards.

The commission just released its Order and Report last Friday, however, which weighs in at 312 pages, 1204 footnotes (excluding commissioners' statements) and 567 numbered items in the main body. My interest weighs largely in the area of how the commission defined the form of open devices and open applications that were requested by Google, Skype, other Internet firms, and a number of public interest groups, among other parties. Google's desire to have a non-discriminatory resale requirement for the C Block that would allow any provider to offer access for sale, paying reasonable wholesale rates. That wasn't agreed to. But open applications and open devices could still change the market.

My concern was partly due to the press release's loose language, which conflated handsets and devices. An open handset requirement might mean you could use any phone you wanted on a 700 MHz network provider's network. (It's most likely a single provider will buy all six licenses, providing national coverage.) But an open device requirement means that the plethora of equipment available for Wi-Fi could find its way in some form to 700 MHz C Block. Right now, getting permission and certification for any device to use a cell network requires a lot of time and money. The folks at SmartSynch, makers of wireless utility meters, said it costs them $150,000 to get cellular certification. The same device in Wi-Fi form costs $10,000. The difference are all the layers of additional approval, at the end of which, the carrier still has to agree to allow your device on the network.

The discussion in the report and order start on page 75 (that's III. A. 2. a. (iii), item 189, to be precise). For a Republican-controlled FCC, the report and order sounds awfully jaded. The commissioners and staff have apparently experienced enough nonsense from carriers control of their networks first hand to sound a little pissy. In item 198, for instance, "Although wireless broadband services have great promise, we have become increasingly concerned that certain practices in the wireless industry may constrain consumer access to wireless broadband networks and limit the services and functionalities provided to consumers by these networks." Fair enough, but then: "wireless handsets with Wi-Fi capabilities have been largely unavailable in the United States for reasons that appear unrelated to reasonable network management or technological necessity."

Further, the FCC notes that while competition among carriers is robust, covert behavior with imperfect knowledge leads to an imbalance: "while it is easy for consumers to differentiate among providers by price, most consumers are unaware when carriers block or degrade applications and of the implications of such actions, thus making it difficult for providers to differentiate themselves on this score." Hey, they're starting to sound mad. "there is evidence that wireless service providers nevertheless block or degrade consumer-chosen hardware and applications without an appropriate justification."

The FCC also wants equipment makers--there's the business interest--to have more ability to sell their goods. "By fostering greater balance between device manufacturers and wireless service providers in this respect, we intend to spur the development of innovative products and services." Very Wi-Fi of them; Wi-Fi is mentioned several times as a combination of light regulatory touch and successful innovation. They also note (item 205) that even though the rules would apply just to a single 700 MHZ band license, that the experiment, if successful, would promote operators to adopt these rules in other bands.

In 206, the FCC defines what it means: "Accordingly, consistent with the broadband principles set out above, we will require only C Block licensees to allow customers, device manufacturers, third-party application developers, and others to use or develop the devices and applications of their choosing in C Block networks, so long as they meet all applicable regulatory requirements and comply with reasonable conditions related to management of the wireless network (i.e., do not cause harm to the network). Specifically, a C Block licensee may not block, degrade, or interfere with the ability of end users to download and utilize applications of their choosing on the licensee's C Block network, subject to reasonable network management. We anticipate that wireless service providers will address this requirement by developing reasonable standards, including through participation in standards setting organizations, as discussed below."

After a long discussion of the FCC's right to make these rules--interesting reading that covers the first amendment, commercial speech, and other matters--the FCC gets into particulars in item 222. Wireless providers won't be able to turn off features on handsets. Meaning, if they sell you a phone and it has Wi-Fi built in, the Wi-Fi has to work. They also note a list of things that must be allowed: "We also prohibit standards that block Wi-Fi access, MP3 playback ringtone capability, or other services that compete with wireless service providers' own offerings. Standards for third-party applications or devices that are more stringent than those used by the provider itself would likewise be prohibited."

In terms of bandwidth, the FCC offers some key protections: "In addition, C Block licensees cannot exclude applications or devices solely on the basis that such applications or devices would unreasonably increase bandwidth demands. We anticipate that demand can be adequately managed through feasible facility improvements or technology-neutral capacity pricing that does not discriminate against subscribers using third-party devices or applications."

In short, carriers can't define harm arbitrarily, and the FCC elsewhere describes enforcement action for behavior contrary to its rules. This means that, for instance, if Verizon wants to charge a flat rate for downloads from its own music service but charge by the megabyte at a disproportionate rate for all other downloads, they would likely be in violation. Better, the companies whose services would be affected would most likely be multi-billion-dollar firms who would pursue immediate injunctions. On the last go round of regulatory action against incumbent violators of access rules, the damaged firms were startups struggling with technology and limited budgets. Now we have Google, Intel, Apple, Real Networks, the record labels, the film studios, and many others.

In item 223, the commission says that providers can still use their same certification standards, which could keep costs high. But the processes have to be more limited than those that are currently in place, as the process must be limited to just "reasonable network management" standards being tested.

So that's that. The costs will be higher to get 700 MHz devices made and certified, but almost certainly not as high as for other cellular bands. Further, the operator gets to control the process, and if Google were (unlikely as it seems now) to win the auction for the C Block, they could choose to have extremely minimal certification processes beyond the FCC's own requirements. What these rules do ensure is that a device maker has predictable access to spectrum, and that customers can access services designed to work specifically with devices, and that pricing for such access has to be in line with what an operator charges customers for its own comparable services.

Now we just wait for the auction, which must occur no later than January 2008. The spectrum itself will likely not be unencumbered until as long as the digital television transition deadline of Feb. 17, 2009, when analog TV dies.